FEDERAL RESERVE RANK OF NEW YORK 99 The Business Situation The domestic economy moved further ahead in May, per cent of the 1957-59 average. This was the fourth and early returns for June suggest continued, though consecutive month in which the index has risen by one moderate, strength. In May, industrial production, non- point or more. Gains in May were largest in the materials farm employment, and housing starts each registered its producing industries—notably iron and steel—but there fourth sizable gain in a row, while personal income ad- were also widespread advances in other industries.It is vanced appreciably for the third consecutive month. Retail noteworthy that output of business equipment rose by sales, on the other hand, continued to fluctuate within a nearly 1½ per cent in May, the first increase in this sector narrow range, with weekly data for June also showing no since last December and the largest gain in over a year. improvement over the level reached in February. June Production figures for June pointed to a substantial rise production figures indicate a substantial rise in automobile in the rate of automobile assemblies, as producers tried assemblies, but a decline in steel ingot production. The to end up the 1963 model run with enough cars in inven- recent agreement on a steel labor contract, while enhanc- tory to carry through the model change-over period. Steel ing the prospects for sound long-run growth, is expected ingot production, on the other hand, declined somewhat to lead to some further slackening in steel production in June. The recently announced settlement of the steel over the near term, as steel users bring then inventories labor negotiations is expected to bring about a reduced down into better balance with normal needs. Although level of ingot production in the several months ahead. That manufacturers' inventory expectations point to some slow- the settlement was reached without any formal announce- down in their over-all rate of stock accumulation in the ment of a strike deadline and that the contract falls well third quarter, this slackening may be offset by increases within the Administration's wage guidelines should, how- in outlays for plant and equipment. According to the ever, help to provide a sound basis for long-run growth latest Government survey, businessmen's plans for capital in the industry as well as in the economy as a whole. spending for the last half of 1963 are somewhat stronger The prospect for continued near-term advances in pro- than had been indicated earlier. duction was reinforced in May by the fifth consecutive The recent economic gains have not helped to ease advance in the backlog of unfilled orders held by manu- the serious unemployment problem. Although the over-all facturers of durabic goods. The increase brought back- unemployment rate fell off somewhat in June, it remained logs to the highest level in three years. Although the at a higher level than a year earlier for the fifth con- volume of incoming new orders for durables slipped a bit secutive month, in large part reflecting a marked over-the- in May, it was still at its second highest level on record year rise in unemployment among young people. There and was 4 per cent above the May rate of sales. Moreover, are nearly a million more I6-ycar-olds in the population the decline in new orders was more than accounted for by this year than last, and on average roughly a third of them a slackening in orders for steel. New orders for machinery, are expected to be looking for jobs during the year. Vari- in contrast, increased in May after having shown virtually ous measures have been suggested to deal directly with no change during the preceding seven months. the problems created by this large influx of teen-agers. In contrast to the gains in production, consumer spend- An increase in the skills and training of the labor force ing continued to mark time in May as retail sales re- will in itself contribute to economic growth, but, in turn, mained on the high plateau reached last February. Sales an expanding economy is required if directmeasures are to of new cars declined slightly in May, but dealers still be effective. were selling at a seasonally adjusted annual rate of well over 7 million units, about 10 per cent higher than a year PRODUCTION ORDeRS. AND RETAIL SALCS earlier. At the same time, retail sales of items other than automobiles and parts advanced to a new record. Weekly The Federal Reserve's index of industrial production data for June suggest a continuation of the May pattern, another one in to 124 with a further decline in auto sales •advanced by percentage point May being approximately MOM'ffl.Y REVIEW, JULY 1963 offset by gains in other categories. It is interesting that upward revisions in their over-all third-quarter inventoiy despite this edging-offin the rate of auto sales and despite spending plans. Indeed, just such a factor may have been the fact that recent surveys have reported some reduced partly responsiblefor the upgrading in theirsecond-quarter buoyancy in consumers' attitudes about the over-all per- expectations. Last February, manufacturers had expected formance of the economy, these surveys indicate that con- sales to decline in the second quarter. When surveyed in sumers' intentions to purchase new cars have remained May, in contrast, they expected a 3 per cent increase in at the advanced levels shown earlier in the year. sales in the second quarter and another 1½ per cent rise in the third quarter. PROSPECTSFOR BUSINESS SPENDINO The outlook for capital spending appears to be some- what stronger than earlier. Thus, according to the May Recent information on manufacturers' inventoiy spend- survey by the Commerce Department and the Securi- ing plans suggests some reduction in the planned rate of ties and Exchange Commission, businessmen's plans now accumulation in the immediate months ahead. According point to a 5.2 per cent increase in outlays for plant and to a survey taken by the Commerce Department in May, equipment in 1963. This is a slightly larger rise than the manufacturers expected their inventories to rise by $600 4.8 per cent advance shown in the Commerce-SEC survey million during the third quarter, compared with an ex- taken last February. (A 7.4 per cent gain had been indi- advance of million in the second In pected $900 quarter. cated in the McGraw-Hill survey taken in April and May. a similar survey taken last February, manufacturers had The McGraw-Hill concentrates more an survey, however, expected only $800 million increase in inventories in heavily on large firms than the Commerce-SEC survey the second In the quarter. part, slowdown anticipated for and, in the past, has always indicated a somewhat higher the third reflects the of cutback in quarter expectation a level of spending than the Government survey.) steel stocks. Achievement of a than higher anticipated To be sure, there still are uncertainties in the capita] rate of sales cause could, however, manufacturers to make spending area. For example, the latest survey by the National Industrial Conference Board indicates that net new capital appropriations by large manufacturing Cl,,,,,. firms declined by 22½ per cent in the first quarter, follow- RECENT DEVELOPMENTSIN PLANT ANDEQUIPMENT ing the sharp increases in the third and fourth quarters SPENDING of last At the same the Soaso,iaIlyodluilod. oiuwol ,., year. time, Commerce-SECsurvey Bltion,ol doll,,,, BillIonsl doll.,, indicates that actual outlays for capital equipment in the 42 12 first quarter and the expected volume of spending for the second quarter turned out to be lower than the levels previouslyexpected (see Chart I). Indeed, expenditures in the fIrst quarter now show a $1 billion (seasonally ad- justed annual rate) decline from the fourth quarter of 1962, marking the second quarter in a row in which out- lays moved downward. On the other hand, the estimated rise from the first quarter to the second quarter of the year is now nearly twice as large as shown in the February survey, and an even larger rise is expected for the third quarter. From the first half of the year to the second half, businessmen now expect about double the increase that had been implied in the February survey. RECENT DEVELOPMENTS IN UNEMPLOYMENT Although most broad measures of economic activity have scored new records during the first half of 1963, unemployment has continued to be about as high and *lunplitd widespread as last year. To be sure, the seasonally ad- Seu.o., UniP.d5,.,.s D.po.in..nIol Cou,,,,tS.w,'.,, and I.chong. rate in June off to 5.7 cent Commission. justed unemployment edged per of the civilian labor force from the 5.9 per cent level FEDERAL RF.FRVE BANE OF NEW YORK 101 reached the month before. The June level, however, still T.bI was either the same or than the rate in ten of the UNEMPLOYMENT AS A PERCENTAGE OP ThE CIVILIAN higher LAIIOR FORCE, BV AGE AND iNDUSTRIAL CLASSiFICATION months of 1962, a year which in turn was marked by sub- 1957 AND 1962 stantially higher unemployment rates than the period following the 1954 recession.1 Indeed, unemployment Cianiflotian 1957 19 rates were higher in 1962 than in 1957—and in mostcases Over-all unemployment rate 4.3 5.6 14- and appreciably higher—for every age group (except Unemployment rate, by age group: and for industrial for 14-15 yee.ti ofage .. 7.6 7.7 15-year-old girls) every group 16.17 .